Google Develops a Facebook Rival

Google is going gaming, according to people familiar with the matter. WSJ's Amir Efrati reports that the web giant has been in discussions with top developers to offer games online and capture ad dollars.

By

Amir Efrati

Updated July 28, 2010 12:01 a.m. ET

Google Inc. is in talks with several makers of popular online games as it seeks to develop a broader social-networking service that could compete with Facebook Inc., according to people familiar with the matter.

Google has been in discussions with top developers to offer their games on a new service it is building, these people said. Those developers include Playdom Inc., Electronic Arts Inc.'s Playfish and Zynga Game Network Inc.—a company in which Google recently took a financial stake, these people said.

It is unclear when Google may launch the new gaming offering and the plans aren't finalized, but people briefed on the matter said the games would be part of broader social-networking initiative that is under development by the Mountain View, Calif., company.

In an interview this week, Google Chief Executive Eric Schmidt declined to confirm the development of a social-networking service that would incorporate social games, rumored to be called "Google Me." When asked if Google's service might resemble Facebook's, Mr. Schmidt said "the world doesn't need a copy of the same thing."

Google's push into social games represents the latest attempt by the Web-search leader to capture users and advertising dollars that are increasingly flowing to social networking, an area dominated by Facebook, Twitter Inc. and others.

For social-game developers, a successful Google offering would mean they wouldn't be so heavily dependent on Facebook, where the vast majority of users access the games. Consumers' appetite for social games is booming— Zynga's "Farmville" game has more than 60 million active monthly users—and that is attracting bigger players looking to tap new sources of growth. On Tuesday, Walt Disney Co.DIS-0.02% acquired Playdom for $563.2 million plus up to $200 million more if performance targets are reached. And retailer GameStop Corp.GME-0.67% agreed to buy online game distributor Kongregate Inc. for an undisclosed amount.

Disney CEO Robert Iger said Tuesday in an interview that his company views social games as a way to reach consumers in a fragmented media landscape. "People are consuming product in new destinations, on new devices," Mr. Iger said. "You've got to put your product on those devices."

Social games are less complex than those played on consoles like Microsoft's Xbox 360 or Sony PlayStation 3. Individuals use the games to interact with online friends in their networks. The developers make money through advertising and by offering users a way to pay for virtual goods in their games that could, for example, help them manage a virtual farm or defeat rival mobsters.

Game developers pay Facebook 30% of the earnings from virtual-good purchases in their games. Google already has an online payment mechanism called Checkout that, in theory, it could use to collect payments for social games on its platform.

A Facebook spokesman said the company wouldn't speculate about Google's initiative but said the company expected new social-networking efforts by others and "looks forward to seeing what others have to offer."

In countries such as China and Japan, social games generate billions of dollars in revenue. In the U.S., social gaming was a $700 million market in 2009, according to estimates by ThinkEquity LLC, a research firm. That figure is supposed to triple by 2012, the firm said.

Google in February made a foray into social networking with its Buzz product, which brings social updates such as photos and Web links into Gmail, though the launch was marred by privacy concerns. The social-networking service being considered would incorporate and go beyond Buzz, according to one person familiar with the matter.

When asked about Google's partnership with Zynga, Mr. Schmidt said "we haven't announced it" but "you can expect a partnership with Zynga" in the future. Google's partnership with Zynga was reported earlier by the blog TechCrunch.

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Associated Press

Google also owns Orkut, a social network service that is popular in some countries.

The growth of Facebook and its potential threat to Google is one of the hottest topics being discussed by technology executives and venture capitalists in the Bay Area.

Many users now rely on their friends on Facebook—not just Google—to discover content and products they can purchase on the Internet. And much of the content generated by users on Facebook is generally kept out of view of Google's search engine.

Over the past year, several former Google executives who ran the company's core advertising business left to work for Facebook. Facebook, now with over 500 million users, sells advertising on its own site. But speculation is growing that it could launch an advertising network across other sites, rivaling Google's ad network AdSense.

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Google's Mr. Schmidt argued in an interview that Facebook is good for Google because it brings more users to the Internet, and "Facebook users use more Google products than any other users."

Google for years has allowed developers to create basic social games for a service called iGoogle, which allows users to customize and add features to their Google.com home page. But the games haven't been widely promoted and few have gained a large following.

Some media companies are increasingly targeting developers for acquisition. Last November, Electronic Arts paid $400 million for Playfish.

For Disney, the purchase of Playdom is its second foray into social games. Disney earlier this month acquired Tapulous Inc., a maker of music-related social games for mobile devices including iPhones.

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